Pondy Oxides And Chemicals (NSE:POCL) Looks To Prolong Its Impressive Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Pondy Oxides And Chemicals' (NSE:POCL) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Pondy Oxides And Chemicals is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.20 = ₹802m ÷ (₹5.7b - ₹1.7b) (Based on the trailing twelve months to September 2024).

Thus, Pondy Oxides And Chemicals has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Pondy Oxides And Chemicals

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pondy Oxides And Chemicals' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Pondy Oxides And Chemicals.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Pondy Oxides And Chemicals' returns on capital. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 195% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Pondy Oxides And Chemicals can keep this up, we'd be very optimistic about its future.

On a side note, Pondy Oxides And Chemicals has done well to reduce current liabilities to 30% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Pondy Oxides And Chemicals' ROCE

Pondy Oxides And Chemicals has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 312% return they've received over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know more about Pondy Oxides And Chemicals, we've spotted 4 warning signs, and 1 of them is concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.